Super rich may not have to pay higher tax

Economic Survey: It is better to achieve tax-GDP ratio by broadening the base

In an indication that a higher tax on the super rich may not be proposed in this year’s budget, the Economic Survey has warned against increasing tax rates and instead suggested garnering revenues through widening the tax base.

“It is much better to achieve tax-GDP ratio by broadening the base which is taxed rather than increasing marginal tax rates significantly,” according to the Survey for 2012-13.

The Survey went on to add that higher and higher tax rates impinge more and more on incentives to undertake taxable activity, while encouraging tax evasion.

Analysts said the strong and vociferous prescription by the Survey should set at rest the debate over taxing higher the super-rich or imposing an inheritance tax, which yielded less than satisfactory results in the past years.

The debate was first initiated by Prime Minister’s Economic Advisory Council Chairman C Rangarajan, when he stressed on the need to examine introduction of an additional slab at a higher marginal tax rate for super rich or imposing a surcharge on the income above a certain level.

Later, Chidambaram too had talked about taxing the “very rich” a little more during his road show in Singapore last month.

 “When the government requires more resources, the very rich should willingly pay a little more,” he said.

Analysts, however, are of the view that the government is not going to garner much through this proposal since a miniscule of India’s 1.2 billion people declare their income above Rs 20 lakh.

Chidambaram himself had said earlier that only 14.6 lakh people in India declare their income above 10 lakh, which is too little given the size of India’s population.